Coal, petroleum and sand drive BNSF’s operating revenues lower

Slumping revenues for coal and energy products put pressure on BNSF’s (NYSE: BRK) profits in the third quarter, according to parent company Berkshire Hathaway.

Third-quarter operating revenue was $5 billion, down 14.1% compared with the third quarter of 2019, as rail volumes continued to be negatively impacted by the pandemic, Berkshire Hathaway said this weekend.

Pretax earnings in the third quarter were $1.8 billion, down 8.4% from the same period a year ago.

Looking at operating revenues, third-quarter operating revenues for coal tumbled 34.6% to $651 million, reflecting a decrease in the average revenue per car/unit as well as a 25.3% decline in coal volumes. The segment since the start of the year has experienced lower electricity demand, driven by impacts of the COVID-19 pandemic, as well as mild winter weather in the first quarter, low natural gas prices and utility coal plant retirements, Berkshire Hathway said.

Meanwhile, operating revenues from industrial products slipped 25.1% to $1.2 billion on a 23% decline in volumes as well as on lower average revenue per car/unit. The segment has been experiencing reduced demand from the sector, which has been driving down sand and petroleum products volumes, Berkshire Hathaway said. The COVID-19 pandemic also drove U.S. industrial production lower for the first nine months of this year.

But not all segments reported lower volumes for the third quarter. Volumes for consumer products rose 0.5% amid increased retail sales and inventory replenishments by retailers, Berkshire Hathaway said. Increased retail sales also drove domestic intermodal volumes higher. However, operating revenue for consumer products was down 4.5% on lower average revenue per car/unit. Operating revenue for consumer products totaled $1.9 billion.

But BNSF’s agricultural products segment saw increases in both operating revenue and volume. Third-quarter operating revenue rose 1.7% to $1.2 billion amid a 3.9% increase in volume and despite a lower revenue per car/unit. “The adverse impacts of the COVID-19 pandemic on volumes, primarily for ethanol and sweeteners shipments, along with lower soybean exports, were substantially offset by higher grain and meal exports,” Berkshire Hathaway said.

As operating revenues fell in the third quarter, so did operating expenses. They slipped 18% to $3 billion on lower volume-related costs, improved weather conditions year-over-year and the effects of cost control and productivity initiatives, the company said.

As a result of the cost cutting, operating ratio was 2.9 percentage points lower, reaching 59.7% in the third quarter. Berkshire Hathaway defines operating ratio as the ratio of operating expenses to railroad operating revenues. Some investors use operating ratio as a gauge for the financial health of a company, with a lower ratio implying renewed financial health.